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B2B Explore insights impacting the B2B environment, including production and supply network, and the trends that are evolving the global consumption of ingredients and packaging materials across a changing consumer goods marketplace.

Major New Entrant to the Global Flavours Industry

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Since the Wild Flavors business was put up for sale earlier this year, there has been much speculation about its ultimate fate, with a series of companies suggested as potential suitors, including other flavour houses, more diversified ingredients businesses and private equity investors. All questions have now been answered with the news that the business has been snapped up by US ingredient and agricultural giant ADM for a sum of €2.3 billion (US$3 billion), the largest deal in the company’s 100-year plus history.

This is certainly a big change for an industry that has welcomed very few new faces over the past 10-20 years. Instead, the focus of the industry has been on market concentration, so much so that the top ten firms now account for 80% of global flavour sales. As a result, in the current environment, a bid from another of the top flavour houses would almost certainly have led to competition concerns but ADM’s entry to the market causes no such fuss from the regulators.

It will definitely generate more of a stir in the industry itself, however, as it brings an ingredients behemoth into direct competition with flavour and fragrance specialists such as Givaudan, Firmenich and IFF. Wild is already a strong competitor to these market leaders, generating annual flavour sales of over US$1 billion, and the backing of a company the size of ADM (which has annual revenues of almost US$90 billion) immediately enhances its position as a serious player. Much of Wild’s focus is on the beverage industry, where it is partner of choice for many formulators, and although the deal will have little major impact on its day-to-day operations, any investment from its new parent could help to boost its already strong reputation in flavour innovation.

ADM to Tap into Value-Added Benefits

While Wild should benefit from the sheer weight of ADM’s size and reputation, the American business is looking to take advantage of the value-added nature of Wild’s ingredients. The deal again highlights a growing trend in the ingredients industry, with more and more commodity giants looking to reduce their dependence on ingredients that can suffer from volatility in pricing and supply levels and which deliver very small profit margins. Instead, they are seeking opportunities in value-added ingredient categories with steadier supply chains and higher margins. ADM has announced that it plans to create an entirely separate division called Wild Flavors and Specialty Ingredients following the acquisition and this suggests an intention to expand further into these areas in the future.

Interestingly, the ADM-Wild deal comes just 3 years after ADM’s arch rival, Cargill, exited the flavours category, selling its business to Kerry Group. However, those flavour interests were relatively small compared with the Wild Flavors operations, and Cargill remains committed to value-added ingredients, simply concentrating instead on its more established fields of operation such as texturisers, cocoa, sweeteners and functional food ingredients.

More Settled Times for Flavour Industry?

As far as flavours are concerned, opportunities for further industry consolidation are shrinking. Over the past 5-10 years, Kerry Group and Frutarom have between them scooped up a significant number of smaller operations via steady acquisition programmes so any company now looking to build on its flavour activities would probably need to make a more sizeable investment and take on a large- or mid-sized company.

It could well be that the flavours industry will now settle down for a while, with the more established businesses expanding mainly through investment in existing operations and regional spread, while Kerry and Frutarom continue to sweep up some of the remaining smaller firms, particularly in the natural and savoury flavours categories. However, Ajinomoto, which was recently involved in the bidding for both Diana (which was bought by Symrise) and Wild Flavors, is still hovering as a potential investor in this industry so another more significant acquisition cannot be ruled out.

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